Bell Pottinger shareholders consider legal action

Shareholders in Bell Pottinger are considering taking legal
action against the former directors of the collapsed agency for failing to
alert them to the scale of the crisis in South Africa.

It is understood that shareholders believe that were not in
full possession of the facts when Bell Pottinger launched a share buy back
earlier this year which, had they known, might have prompted their participation.
Today, their stakes are worthless.

The buy back was prompted by the need to acquire Lord Bell’s
six per cent stake in the business, following his ousting the previous year.
Other shareholders demanded the same right to sell back their shares, which had
failed to perform since the management buy out and never even paid a dividend.
However, the majority of shareholders did not take up the option.

In the event, Bell Pottinger borrowed £6 million in March from
Lloyds Banking Group to fund the purchase. It is believed that Lord Bell
received around £650,000 for his stake.

At the time of the buy back, Bell Pottinger had already lost
accounts with South Africa’s Investec banking group, the South African Tourist
Board and long standing client Richemont as a result of its association with
the Gupta brothers. The agency was under attack in the South African media,
accused of stoking racial tensions. Clients and employees were also being
trolled. Some shareholders claim they were not aware of the extent of the
campaign against Bell Pottinger, which one month later resigned the Oakbay
account.

Shareholders are demanding to see the full version of the
report drawn up by law firm Herbert Smith Freehills, which investigated the work
of Bell Pottinger for Oakbay Capital, the investment vehicle for the notorious
Gupta brothers. The report was ordered in June by former chairman Mark Smith after
the Public Relations and Communications Association (PRCA) announced it was
investigating the work, following a complaint from South Africa’s Democratic
Alliance party.

Interim evidence from the law firm prompted the dismissal of
account lead Victoria Geoghegan and the suspension of three other employees.
While Bell Pottinger published an abbreviated version of Herbert Smith’s
findings, the shareholders are demanding to see the full report, of which just
a handful of copies exist. It is understood that Herbert Smith has recommended
that the unabbreviated versions should be destroyed because of the sensitivity of
their contents. However, the shareholders have received legal advice that these
are ‘discoverable’ documents and should be preserved.

An in-depth analysis of the Bell Pottinger scandal will appear in the October issue of CorpComms Magazine